Demystifying Workers’ Comp: How Workers’ Comp Rates Are Really Set (And Why You Might Be Overpaying)

What You Need to Know About Loss Costs, Multipliers, and Market Strategy

If you’re a business owner with employees on payroll, you’re probably already paying for Workers’ Compensation insurance — but do you actually know how that rate is determined?

Most folks assume it’s just a flat cost or something they can’t influence. But in reality, what you pay for Workers’ Comp can vary a lot depending on how it’s calculated behind the scenes. At GMAC Works, we think knowledge is power — especially when it comes to protecting your team and your bottom line.

Let’s break it all down for you in plain English.

🧾 Workers’ Comp: It’s All About the Math (And the State You’re In)

Workers’ Comp insurance is regulated at the state level, which means each state plays by its own rules. But most fall into one of three categories:

• Competitive Rate States (most common): Insurance carriers can adjust your rates based on market factors.

• Set Rate States (like Florida and New Jersey): The state decides the price for everyone.

• Monopolistic States (like Ohio and Washington): The state is the insurance provider.

If your business is in a competitive state, that’s good news — because you may be able to shop around and save if you know what to look for.

📉 What’s Driving Your Workers’ Comp Rate?

Two key ingredients determine how much you pay:

1. Loss Cost (LC)

This is the base rate, set by a state agency. It reflects the expected claims cost for your type of work.

You can’t change this.

For example: Roofing will always have a higher base rate than clerical work because the risk is greater.

2. Loss Cost Multiplier (LCM)

This is where things get interesting.

Every insurance company adds their own “multiplier” to the base rate to cover their business costs — things like overhead, commissions, and profit margins.

This is where rates differ between companies.

🧮 The Simple Equation

Let’s say you own a plumbing business in South Carolina. Here’s how the rate would be calculated:

Rate = Loss Cost × LCM

Premium = (Payroll ÷ 100) × Rate

If you know the payroll and the classification of work (known as a “class code”), that’s all it takes to estimate your cost — and compare it with other carriers.

🧠 Breakdown:

• LC (Loss Cost) is the baseline — it’s the same for all carriers within a class code and state.

• LCM (Loss Cost Multiplier) is where carriers differ.

• This graphic shows three class codes:

  • Roofing (5551)

  • Clerical (8810)

  • Plumbing (5183)

  Each class code has:

• A low LCM carrier (more competitive)

• A high LCM carrier (more expensive)

🚀 Key Insight:

A higher LCM = Higher Rate = Higher Premium.

This is your opportunity as a business owner to seek out smarter options with more competitive carriers. This is our speciality!

🚨 Why This Matters to You

If your current insurer has a high LCM, you could be paying significantly more than necessary — even for the exact same type of coverage.

And guess what? Many business owners don’t realize this until we show them side-by-side comparisons.

👉 This isn’t just small change. For companies with dozens of employees, the difference can be thousands of dollars a year.

💡 Extra Credit: Some States Add a Twist

A few states allow carriers to:

• File different rates for specific job types (great if you’re in a niche industry).

• Offer different pricing tiers (like “standard” vs. “preferred”).

• Choose from multiple rating systems altogether (like Texas, which lets insurers pick between two different models).

If that sounds confusing — well, it is. But that’s why GMAC Works exists: to do the heavy lifting, so you don’t have to.

🧠 The Takeaway for Business Owners

You can’t control the base rate for your industry, but you can control who you partner with for coverage.

The key is understanding how your Workers’ Comp rate is built — and working with someone who can explain and optimize it for you.

At GMAC Works, we dig deeper than the quote. We analyze how your rate is built and help you explore better options. If you haven’t reviewed your Workers’ Comp policy in a while, or your premium keeps going up, it might be time for a second opinion...

👋 Want Us to Take a Look?

We offer free Workers’ Comp reviews — no pressure, just insight. If we find a better rate, we’ll show you exactly how it works. If we don’t, at least you’ll know you’re in good shape.

🔗 Click here to schedule a free review

📞 Or call us directly at (843) 286-4974